Buzz Words in Estate Planning

At the beginning of the decade, when the focus was on accounting principals and shareholder reports, Wall Street made the phrase “Fuzzy Numbers” famous. As people grew tired of yet another financial scandal and sought out entertainment, the focus turned to athletes, performance enhancing drugs, and Congressional Hearings. “Misremembering” was the humorous term of choice shouted from the top of Capitol Hill down to every cocktail party in town. Lately, “Credit crunch,” “Bailout,” “Over Indulgence,” “TARP,” and “Personal Responsibility” have become vogue.

Lost in the midst of the worst financial crisis since the days of the Great Depression, are words such as “Estate Planning,” “Contingency Plans,” “Charitable Gifting” and so on. The 43rd Annual Heckerling Institute on Estate Planning was recently held in Orlando, Florida. Billed as the “Nation’s Largest Estate Planning Conference,” it was barely mentioned that the estate tax just increased to three and a half million dollars from two million dollars or that the estate tax is to disappear in less than one year. If the estate planning community isn’t discussing these major changes in the law, who is?

A roll of the eyes, a cold shoulder, complete dismissal, usually accompanies these estate planning topics lately. It’s not that individuals feel that it isn’t relevant; it obviously still is. But rather, everyone just “Feels Poor” or has “Bigger Issues.” Well, as the old adage goes, the only things certain in life are “Death and Taxes.”

What was important then is just as important now. Estate planning isn’t a luxury; it is a necessity. Proper estate planning provides the avoidance of probate and, oftentimes, time-consuming and costly procedure. Proper estate planning provides for seamless transitions, whether it is from a business standpoint or even a guardian, trustee, or conservator point of view. Proper estate planning provides a vehicle in which unnecessary estate taxes can be avoided. Proper estate planning can ensure that a child’s every need can be met.

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Discounted values can be had on closely-held business interest, family farms, partnership interest, homes, securities, even holding companies. Charities benefit from planned giving strategies, outright gifts, and in-kind donations. Structured properly, a charitable donation, even at death, could provide income tax savings, tax deductions, and credits during life.

So your portfolio is down 40 percent, your home isn’t increasing in value by 27 percent this year, and your credit score dipped well below 700. Is “Equity” still important to you? Does the phrase “Litigious Society” mean anything? What about “Asset Protection”? Is this a hot button item? It should be. In the society we live in, the most litigious one at that, asset protection should be at the forefront of your planning objectives—especially now.

“Is it legal?” just happens to be one of my favorite phrases lately. It’s on the list with “Don’t you just throw a bunch of boiler plate language together.” It’s as if law school didn’t matter or my career isn’t important to me. Whether this is an indictment of the legal community and just how far lawyers have fallen in the eyes of many or just a sign of the times and the perception that nothing positive can be gained in the tumultuous economic environment we are living in, clients just can’t believe that steps can be taken to avoid unnecessary estate taxation, assets can be protected from creditors, and investments can gain positive traction.

Quite the opposite actually. Current law allows for a married couple to shelter up to seven million dollars from estate tax. Annual gift giving has increased to thirteen thousand dollars. The estate tax is set to disappear in 2010. Combine some of these changes with a super-charged credit shelter trust, a “Crummey Notice” or a “GST” trust, and presto, you may have just set up generations of family members for life.

Asset Protection ranges from very simple techniques such as proper titling, the use of an LLC, or even some qualified retirement plans, to the very complex, “Offshore Asset Protection.” While “Fraudulent Transfers” are sensationalized in the headlines of every hometown newspaper and national television news ticker, the majority of this type of planning has been done properly, quietly and, most importantly, legally for decades. The Internal Revenue Code is littered with page after page of law authorizing the use of offshore trusts and corporate entities.

Well, as the old adage goes, the only things certain in life are “Death and Taxes.”

With depressed market values, there may not ever be a better time for an “Installment Sale,” “GRAT,” “FLP” or “QPRT.” Gifting property at a future date, based on present market value regardless of appreciation, is bread-and-butter planning. If a natural discount is available via the depressed real estate or securities market, imagine the value once the market rebounds.

The bottom line is that while yes, the world is fraught with challenges, a poor economic outlook, housing market, and declining employment opportunities, it is not only the perfect time to be proactive, it is almost a necessity to act. A little bit goes a long way and there has never been a better time to make so much out of so little. As some might say, “Preparation, Preparation, Preparation.”

Peter J. Strauss, Esq. has a law degree from New England School of Law, a masters in estate planning from the University of Miami, and lives on the island with his wife and son. He serves on the board of directors for the Children’s Relief Fund and Low Country Legal Aid. He is an attorney with Novit & Scarminach P.A. and can be reached at pstrauss@ns-lawfirm.com or via phone at 843.785.5850.